Kotak Mahindra Bank on Wednesday reported a standalone net profit of Rs 696 crore, 32% higher than its profit in the same quarter last year.
Kotak Mahindra Bank on Wednesday reported a standalone net profit of Rs 696 crore, 32% higher than its profit in the same quarter last year. On a sequential basis, the bank reported a rise of close to 10% in its bottomline. In an interaction with reporters, executive vice-chairman and managing director Uday Kotak talks about the company’s results, the effects of the merger with ING Vysya last year, and the bank’s outlook for FY17 in terms of loan growth and credit costs. Excerpts:
This was the first full fiscal year after the ING Vysya-Kotak Mahindra Bank merger last year. Has the integration been completed yet?
This was a year of integration, of making sure that the different pieces got together. And all the challenges you face in a merger including the potential stress in the balance sheet of the bank acquired, was discussed with you and the analyst community in the first quarter itself. And I am happy to report back to you that we are now coming to an end of our integration phase. We expect our integration to be fully completed by the end of this quarter.
How do you see loan growth panning out in FY17 and what is your outlook for credit costs going forward?
I am delighted to say that we see a potential loan growth in 2016-17 of around 20% per annum from our current advances base. We also see moving towards a normalisation of our credit costs against 83 basis points, which we incurred in 2015-16. Going forward, we see our credit costs for 2016-17 coming down to a level of around 45-50 basis points by the end of FY17.
Your credit cost guidance from last year has almost halved in your projection for FY17. What gives you the confidence that they will improve that drastically and what is the stress on the ING Vysya book?
Now we look at it as one book. So our credit costs of 83 basis points is on the combined book, which is what we have incurred for FY16. New NPL (non-performing loans) flows come from the SMA 1 (special mention account 1) and SMA 2 categories into NPL. On our SMA 2, as the numbers show, we have a pretty controlled number because that’s where the flow comes from. Of course, the number that we have given is for loans above R5 crore and there are loans below that as well. But we believe that the 45-50 bps credit cost guidance seems reasonable enough to give to the marketplace. Because we also have one of the lowest restructured standard loan book as well.
Since you seem bullish on the coming year, can you tell us which are the sectors from which you see an uptick in credit offtake?
I think the commercial vehicles sector is looking better. We are also seeing the business banking and small businesses segments looking good. We also believe that in a lot of banks there is a herd mentality. Everyone is saying retail is very good and wholesale is very bad. We don’t think it is as cut and dry as that. We are opening to look at good wholesale as well. So the fundamental philosophy which we have is ‘look at the risks, look at the returns, and thereafter take your decisions based on risk-adjusted returns’.
Lastly, could you give us your view on margins for the current fiscal year?
We had projected around 4.25 for this year and we have finished slightly above that. I think that going forward, we see it remaining above 4%.